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SNAP - 5/22 $18p, b/e $16.86
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I would suggest approximately 2 weeks as theta is not straight line, but you need to watch your fees. I'd agree that you want quality first, then trend / momentum, then strike.
If capital is your limitation, then you can buy a call 3-6 months out which will have very little theta decay and much lower capital invested. Buy in the money to manage delta risk, while selling out of the money.
This is called a Diagonal, it is a highly levered wheel strategy.
Never use a ticker trading less than 1M shares a day.
Never use a company you've never heard of without learning about it.
If you get 50% profit in a week, take it.
The wheel is a theta focused strategy (theta being the rate of decay of an option) I would go to at least monthlies so you have time. Without the time factor you are putting up a lot of collateral (risk) with a lower return.
The test then becomes with a month or more of time, how sure are you on the underlying? If a stock is so volatile that you would regret owning it in a month then it is probably not something you want to be wheeling on.
I felt this from experience after getting assigned on some trash companies. Now I have much more peace of mind working with stocks I really wouldn't mind owning where I also understand the industry and what makes the company valuable in the long run.
Thanks! I appreciate the feedback. I was looking at shorter timelines to reduce opportunity cost with limited capital. In my (admittedly limited) research, it seemed that the premiums didn’t go up at the same rate as time. So for example an expiration at 2 weeks might be .95, but the four week is 1.60. Since I would then just turn around and execute the second part of the wheel if it’s assigned - wouldn’t I want to maximize premium/day of collateral? All this assumes I have at least some interest in holding the underlying.
I like doing the wheel on metals and miners. I just always sell the closest to spot that I can get each week. SLV and HL if your on a small account. HL yields a really good monthly return if you do the weeklies one or two weeks out. I.e.. I just sold the Jan 26 $5 put for .27 each. That's a 5.4% yield which is typical when the stock is at a strike. I did 30 days on this play due to the front weeks in this account is already crowded with other plays. I love a high yielding issue that goes nowhere! Hope that helps.
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Are you letting them expire? That ties up a lot of capital for those last couple days. Are you not paying any exchange fees?
I find $0.60 my low target for 2 week options and selling the Monday before expiration maximizes my gains.
Missed both of those last comments, but great info - thank you!